Indonesia Bucks Tightening Trend as Rate Held at Record Low

• Indonesia’s central bank kept its borrowing costs unchanged to support economic growth, while signalling it wasn’t in a hurry to join the global interest-rate tightening cycle given muted domestic price gains.
• Bank Indonesia left the seven-day reverse repurchase rate at a record low 3.5% on 21 Jul 22, as predicted by 22 of 36 economists in a Bloomberg survey. The rest expected policy makers to deliver a 25 basis-point hike.
• The country’s benchmark stock index closed 0.15% lower, while the rupiah extended losses to 0.3% at 15,033 against the dollar after Governor Perry Warjiyo cited within-target core inflation to justify the case for continuing with the easy policy.
• Perry acknowledged that 2022’s headline inflation could fall between 4.5% and 4.6%, which marks the latest upward revision to the central bank’s forecast, up from the previously announced projection of 4.25%, but said core inflation would stay between 2%-4%.
• On headline inflation breaching the central bank’s 2%-4% target range, he said it will return to target 2023, while pointing that price gains in the core measure tracked by the central bank will remain within range.
• The governor said the central bank sees the economy expanding more toward the lower end of a 4.5%-5.3% outlook range, as he flagged risks to global growth.
• Bank Indonesia has been using tools other than interest rates to normalize monetary policy settings. Governor Warjiyo reiterated raising the reserve requirement ratio gradually to absorb excess liquidity, with IDR219tr absorbed so far.
• The bank has planned more government bond sales to mop up excessive money from the financial system. Still, keeping borrowing costs lower will boost credit demand in the economy, supporting its recovery from the pandemic.
• Jun 22 loan growth was at 10.7% y/y, Warjiyo said, while urging banks to step up lending activity.
• BI also revised its 2022 current account forecast to a range from a surplus of 0.3% of gross domestic product to a deficit of 0.5% of GDP. The previous estimate was for a deficit of 0.5%-1.3% of GDP in 2022.
• One of the long-standing policies of BI was to gradually raise the statutory reserve requirement, he said, which would not decrease the domestic liquidity needed to provide credit for business activities.
• From 1 Mar 22 to 15 Jul 22, this measure had absorbed IDR219tr of domestic banking liquidity, the governor said, which is almost twice the figure reported in the previous monthly BI policy meeting.
• In an agreement with the Finance Ministry to support the economic recovery, the central bank has committed to continuous buying of government securities (SBN) in the primary market.
• Those purchases had reached IDR56.11tr as of 20 Jul 22, Perry noted, up 72% from the figure mentioned in the previous policy meeting. “The distribution of bank loans and financing to the business world continues to reflect recovery with adequate liabilities being maintained,” Perry continued.

External Link : https://www.bloomberg.com/news/articles/2022-07-21/indonesia-bucks-tightening-trend-by-keeping-rate-at-record-low#xj4y7vzkg

External Link : https://www.thejakartapost.com/business/2022/07/21/bi-remains-dovish-despite-rising-inflation.html